Another worrying factor is the high debt-to-equity ratio of real estate companies which are finding it difficult to reduce debt due to high interest outgo and poor cash flows. The critical situation can be gauged from the fact that market leader DLF saw its debt rising by Rs 628 crore to Rs 20,965 crore in March quarter 2015.

But several reform initiatives undertaken by the Modi government in its first year have raised high hopes of real estate turnaround. The government is putting great emphasis on boosting foreign direct investment to overcome fund crunch. Its policy initiative to ease foreign equity rules in construction by reducing the minimum capital requirement from $10 million to $5 million and built-up area from 50,000 square metres to 20,000 square metres is meant to provide lifeline to fund-starved developers.

By clearing decks for real estate investment trusts (REITs), the government has provided new funding option for developers and investment avenue for retail investors. There is another major initiative by way of allowing foreign investments in alternate investment funds. And in a recent twin-measure, the government has eased foreign equity norms for overseas Indians and liberalised rules for allowing offshore loans in rupee.

Further, single-window foreign equity nod and regulation of norms pertaining to foreigners and firms purchasing property in India are underway. Besides these reform measures, the government is creating policy environment that is predictable and transparent and for this measures like expeditious and timely approval processes, progressive tax regime, rationalisation of labour laws and ease of doing business are being taken.

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